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Alexandra Horobet () and Livia Ilie
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Alexandra Horobet: Academy of Economic Studies

Studies in Business and Economics, 2007, vol. 2, issue 2, 30-40

Abstract: The paper investigates the dynamic links between stock prices and exchange rates in Romania, after 1997, considering the changes in the exchange rate regime occurred after 1997. The research employs advanced econometric methods – cointegration and Granger causality tests, in order to capture the bi-directional influences between stock prices and exchange rates, applied to monthly data over the 1999-2007 period. We use two types of exchange rates: nominal effective exchange rates and real effective exchange rates, aiming at revealing the competitiveness effects embedded in the real exchange rate evolution. In terms of stock prices, we use the BET and BET-C indices of the Bucharest Stock Exchange. We conclude that there is a long-term equilibrium relationship between the stock market performance and the nominal and real effective exchange rates, while the information is generally transmitted from the stock prices to exchange rates with a one-month lag in the case of cointegrated variables. Also, the exchange rates are the leading variables for the stock prices and the stock market adjusts quite dramatically to changes in the exchange rates in one month time in the case of cointegrated variables.

Keywords: exchange rates; stock exchange; cointegration; Granger causality; competitiveness (search for similar items in EconPapers)
Date: 2007
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